Testimony 

Before the Subcommittee on Government 

Efficiency and Financial Management, 

Committee on Government Reform, 

House of Representatives 

United States General Accounting Office 

GAO

For Release on Delivery 

Expected at 2:00 p.m., EST 

Tuesday, June 10, 2003 DEPARTMENT OF 

AGRICULTURE 

Status of Efforts to Address 

Major Financial 

Management Challenges 

Statement of McCoy Williams 

Director, Financial Management and Assurance 

GAO-03-871T 
Page 1 GAO-03-871T 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss the major financial management 

challenges faced by the U.S. Department of Agriculture (USDA), its 

progress in addressing them, and challenges that remain. 

As you know, in January we issued our Performance and Accountability 

Series on management challenges and program risks at major agencies, 

including USDA.1

 The report for USDA focused on a number of major 

management challenges, including enhancing financial management, and 

continued the high risk designation for Forest Service financial 

management. 

For many years, USDA struggled to improve its financial management 

activities, but inadequate accounting systems and related procedures and 

controls hampered its ability to get a clean opinion on its financial 

statements. After eight consecutive disclaimers of opinion,2

 USDA’s Office 

of Inspector General issued an unqualified opinion on USDA’s fiscal year 

2002 financial statements and reported that significant progress had been 

made in improving overall financial management. For each of USDA’s 

agencies that prepared separate financial statements for fiscal year 2002, 

the audit opinions were also positive. Specifically, unqualified audit 

opinions were issued on the financial statements of the Forest Service, 

Federal Crop Insurance Corporation/Risk Management Agency, 

Commodity Credit Corporation, the Rural Development mission area, and 

the Rural Telephone Bank. While we consider these clean opinions a 

positive step, some of these could not have been rendered without 

extraordinary efforts by the department and its auditors. Achieving 

financial accountability will require more than heroic efforts to obtain 

year-end numbers for financial statement purposes. Without reliable 

financial systems and sound internal controls, it is not possible to have 

sound data on a timely basis for decision making. Before USDA can 

achieve and sustain financial accountability, and thus be in a position to 

have reliable system-generated data as needed, it and its component 

 1

 U.S. General Accounting Office, Major Management Challenges and Program Risks: 

Department of Agriculture, GAO-03-96 (Washington, D.C.: January 2003). 

2

 A disclaimer of opinion means that the auditor is unable to form an opinion on the 

financial statements. A disclaimer results when a pervasive material uncertainty exists or 

there is a significant restriction on the scope of the audit. 
Page 2 GAO-03-871T 

agencies, particularly the Forest Service, must address a number of 

serious problems that USDA’s OIG or we have reported. 

Today I will focus my testimony on USDA’s efforts to improve its financial 

management and the Forest Service’s progress toward achieving financial 

accountability. 

In the past, USDA had several persistent weaknesses in internal control 

and in accounting and financial reporting that contributed to the OIG’s 

inability to render an opinion on the department’s consolidated financial 

statements. The OIG reported, among other things, that USDA was unable 

to: 

• provide sufficient, competent evidential matter to support numerous 

material line items on its financial statements including accounts 

receivable, fund balance with the Department of the Treasury (Treasury),3

and property, plant, and equipment; and 

• estimate and reestimate loan subsidy costs for its net credit program 

receivables, rendering it unable to implement the Federal Credit Reform 

Act of 1990 and related accounting standards.4

The OIG also identified internal control weaknesses over USDA’s security 

controls for information technology and financial management systems 

that do not always process and report departmentwide financial 

information accurately. Further, the OIG reported that many USDA 

financial management systems are not fully integrated with other USDA 

systems. These are some of the factors that required extraordinary effort 

to derive reliable financial information. Further, we reported in December 

 3

 USDA records its budget authority in asset accounts called Fund Balance with the 

Department of the Treasury and increases or decreases these accounts as it collects or 

disburses funds. 

4 Accounting for Direct Loans and Loan Guarantees, Statement of Federal Financial 

Accounting Standards (SFFAS) No. 2, as amended by Amendments to Accounting 

Standards for Direct Loans and Loan Guarantees, SFFAS No. 18. 

USDA’s Financial 

Management 
Page 3 GAO-03-871T 

2001 that USDA had not yet fully implemented certain key provisions of 

the Debt Collection Improvement Act (DCIA) of 1996.5

I will now elaborate on USDA’s progress in correcting these problems and 

what challenges still remain. 

USDA has taken actions over the last several years to improve its financial 

management and to address the weaknesses identified by its OIG and us. 

For example, in fiscal year 2000, Food and Nutrition Service was, for the 

first time, able to estimate its gross accounts receivable and related 

estimate of uncollectible amounts resulting from over-issued benefits in its 

Food Stamp Program. Further, for the first time since credit reform 

reporting requirements were implemented in 1994, USDA’s lending 

agencies were able to estimate and reestimate loan subsidy costs for the 

department’s net credit program receivables, which totaled about $74 

billion as of September 30, 2001. Because of USDA’s achievement in this 

area, along with that of other key lending agencies, this item was no longer 

a factor contributing to our disclaimer of opinion on the financial 

statements of the U.S. government.6

The OIG also noted that USDA made significant progress during fiscal year 

2002 in reconciling its Fund Balance accounts with Treasury’s accounts, 

thus enabling the OIG to validate this line item on USDA’s fiscal year 2002 

financial statements. However, the OIG continued to report this area as a 

material internal control weakness in fiscal year 2002 due to continuing 

deficiencies in USDA’s reconciliation processes. For example, USDA had a 

large backlog of unreconciled items that needed to be researched and 

resolved. As a result, USDA adjusted its records to agree with the Treasury 

without reconciling the differences. Over $180 million (net) of year-end 

adjustments were not supported by transaction-level details. 

 5

 U.S. General Accounting Office, Debt Collection Improvement Act of 1996: Department 

of Agriculture Faces Challenges Implementing Certain Key Provisions, GAO-02-277T

(Washington, D.C.: Dec. 5, 2001). 

6

 U.S. General Accounting Office, U.S. Government Financial Statements: FY2001 Results 

Highlight the Continuing Need to Accelerate Federal Financial Management Reform, 

GAO-02-599T (Washington, D.C.: Apr. 9, 2002) and U.S. General Accounting Office, Fiscal 

Year 2002 U.S. Government Financial Statements: Sustained Leadership and Oversight 

Needed for Effective Implementation of Financial Management Reform, GAO-03-572T

(Washington, D.C.: Apr. 8, 2003). 
Page 4 GAO-03-871T 

Further, USDA will need to continue its actions in addressing weaknesses 

in its financial management information systems. In its fiscal year 2002 

audit report, the OIG stated that USDA made significant improvements in 

its overall financial management, such as implementation of a 

departmentwide standard accounting system, the Foundation Financial 

Information System (FFIS). At the same time, USDA must fundamentally 

improve its underlying internal controls, financial management systems, 

and operations to allow for the routine production of accurate, relevant, 

and timely data to support program management and accountability. 

Specifically, the Federal Financial Management Improvement Act (FFMIA) 

of 1996 requires agencies to institute financial management systems that 

substantially comply with federal financial systems requirements, 

applicable federal accounting standards, and the federal government’s 

Standard General Ledger (SGL). Every year since FFMIA was enacted, the 

OIG has reported that USDA’s systems did not substantially comply with 

the act’s requirements. The OIG reported that the lack of compliance 

stems from USDA’s many disparate accounting systems that are not 

integrated; material internal control weaknesses; and, as explained earlier, 

the inability to prepare auditable financial statements on a routine basis. 

For example, USDA and its agencies operate at least 80 program and 

administrative systems that support financial management. The 

longstanding problems associated with these legacy systems were caused, 

primarily, by the absence of corporate level oversight and planning when 

these systems were initially developed and upgraded. USDA needs to 

continue to address the problems with its legacy systems to improve 

integration of the financial management architecture, timely reconcile its 

property system with the general ledger, and correct inconsistencies in its 

accounting processes. 

Additionally, the OIG continued to report that USDA’s systems are not 

designed to provide the reliable and timely cost information required to 

comply with Statement of Federal Financial Accounting Standards No. 4, 

Managerial Cost Accounting Concepts and Standards. Specifically, the 

OIG’s review of user fees disclosed that two USDA agencies were not 

including the full costs of their user fee programs when determining fees 

and thus, were not recovering the full costs of performing services for 

their individual programs. 

Under the President’s Management Agenda for improved financial 

management performance, agencies are expected to improve the 

timeliness, enhance the usefulness, and ensure the reliability of financial 

information. The expected result is integrated financial and performance 

management systems that routinely produce information that is (1) timely, 
Page 5 GAO-03-871T 

to measure and effect performance immediately, (2) useful, to make more 

informed operational and investing decisions, and (3) reliable, to ensure 

consistent and comparable trend analysis over time and to facilitate better 

performance measurement and decision making. This result is key to 

successfully achieving the goals set out by the Congress in the Chief 

Financial Officers Act and other federal financial management reform 

legislation. 

In addition, the Joint Financial Management Improvement Program 

(JFMIP) Principals have defined success measures for financial 

management performance that go far beyond an unqualified audit opinion 

on financial statements and include measures such as financial 

management systems that routinely provide timely, reliable, and useful 

financial information and no material internal control weaknesses or 

material noncompliance with laws and regulations and FFMIA 

requirements.7

 They also significantly accelerated financial statement 

reporting to improve timeliness for decision making and to discourage 

costly efforts designed to obtain unqualified opinions on financial 

statements without addressing underlying systems challenges. 

The OIG reported that the Office of the Chief Financial Officer has 

developed plans to review USDA’s legacy systems, and consolidate and 

update the systems to meet present accounting standards and 

management needs. Further, USDA’s September 30, 2002, FFMIA 

Remediation Plan discussed a number of remedial actions that the 

department expects to complete by the end of fiscal year 2006. 

Another financial management challenge for USDA is federal nontax 

delinquent debt collection. USDA reported holding $6.9 billion of federal 

nontax debt that was delinquent more than 180 days as of September 30, 

2002. The Debt Collection Improvement Act of 1996 (DCIA) gave federal 

agencies a full array of tools to collect such delinquent debt. Among other 

things, DCIA provides (1) a requirement for federal agencies to refer 

eligible debts delinquent more than 180 days to the Department of the 

Treasury for collection action, and (2) authorization for agencies to 

administratively garnish the wages of delinquent debtors. 

 7

 FFMIA requires auditors, as part of CFO Act agencies’ financial statement audits, to 

report whether agencies’ financial management systems substantially comply with (1) 

federal financial management systems requirements, (2) applicable federal accounting 

standards (U.S. generally accepted accounting principles), and (3) federal government’s 

SGL at the transaction level. 
Page 6 GAO-03-871T 

In December 2001, we reported that two USDA agencies, Rural 

Development’s Rural Housing Service (RHS) and the Farm Service Agency 

(FSA) had failed to make DCIA a priority since its enactment in 1996.8

Specifically, RHS had not implemented an effective and complete process 

to refer debts to Treasury mainly because of systems limitations, debt 

reporting problems, and lack of regulations needed to refer losses 

resulting from claims paid under its guaranteed single family housing loan 

program. FSA lacked effective procedures and controls to identify and 

promptly refer eligible delinquent debts to Treasury. Moreover, USDA had 

not utilized administrative wage garnishment to collect delinquent nontax 

debts. Consequently, opportunities for maximizing the collection of 

delinquent nontax debts as contemplated by DCIA were being missed. 

USDA officials made a commitment in December 2001 to substantially 

improve the department’s implementation of DCIA by December 2002. In 

November 2002, we testified that USDA had made progress in addressing 

previously identified problems.9

 For example, RHS began referring all 

reported eligible debt to Treasury. Further, FSA had developed an action 

plan to improve its process and controls for identifying and referring 

eligible debts to Treasury. However, at the date of our testimony, 

challenges remained that will require sustained commitment and priority 

from top management. For example, RHS still had to complete regulations 

to refer losses related to its guaranteed single family housing loans to 

Treasury and an automated process for such referrals, and FSA needed to 

complete actions needed to ensure that all of its eligible debt is promptly 

referred to Treasury. In addition, USDA needed to complete regulations 

that are required to implement administrative wage garnishment 

department wide and get all of its component agencies to begin using this 

debt collection tool to the fullest extent practicable. The OIG reported 

material noncompliance with the DCIA in its fiscal year 2002 financial 

statement audit report, reiterating the need for sustained commitment and 

priority by top management. 

Now I would like to discuss the progress that the Forest Service has made 

toward achieving financial accountability and remaining challenges. 

 8

 U.S. General Accounting Office, Debt Collection Improvement Act of 1996: Department of 

Agriculture Faces Challenges Implementing Certain Key Provisions, GAO-02-277T

(Washington, D.C.: Dec. 5, 2001). 

9

 U.S. General Accounting Office, Debt Collection: Agriculture Making Progress in 

Addressing Key Challenges, GAO-03-202T (Washington, D.C.: Nov. 13, 2002). 
Page 7 GAO-03-871T 

An area of particular concern within USDA continues to be the Forest 

Service. Historically, the Forest Service’s financial management systems 

have not generated timely and accurate financial information for its annual 

audit and for effectively managing operations, monitoring revenue and 

spending levels, and making informed decisions about future funding 

needs for its program. In addition, the Forest Service has had longstanding material weaknesses with regard to its two major assets—fund 

balance with Treasury and property, plant, and equipment. In 1999, we 

first designated financial management at the Forest Service to be “high 

risk” on the basis of serious financial and accounting weaknesses that had 

been identified, but not corrected, in the agency’s financial statements for 

a number of years. 

The Forest Service received its first-ever unqualified opinion on its fiscal 

year 2002 financial statements, which represents noteworthy progress 

from prior years when the OIG was unable to express an opinion. To 

achieve its unqualified opinion, the Forest Service’s top management 

dedicated considerable resources and focused staff efforts to address 

accounting and reporting deficiencies that had prevented a favorable 

opinion in the past. For example, during fiscal year 2002 the Forest Service 

formed a reconciliation strike team to resolve long-standing real and 

personal property accounting deficiencies. The property, plant, and 

equipment reconciliation team analyzed transaction data to identify 

inaccurate records and reconciled the general ledger to its supporting 

detailed records. In addition, the strike team, in cooperation with the 

USDA Office of the Chief Financial Officer, the USDA OIG, and 

consultants, worked to ensure that property documentation supported 

property records, inventories were complete, and property was valued 

correctly. Further, the team worked with USDA on modifications and 

enhancements to certain property feeder systems. Because the Forest 

Service property comprises 80 percent of the $4.2 billion line item on 

USDA’s financial statements, the OIG was able to validate this number for 

its fiscal year 2002 opinion. 

However, material deficiencies in the controls related to the accurate 

recording of property, plant, and equipment transactions remain. For 

example, the financial statement auditor reported instances in which 

recorded amounts did not agree with supporting documentation and 

inappropriate payroll expenses were included in property values instead of 

being recorded as expenses, resulting in an overstatement of property and 

an understatement of expenses. Further, the Forest Service did not have 

effective controls over the initial recording of acquisition costs, in-service 

Forest Service 

Financial 

Management 
Page 8 GAO-03-871T 

date, and useful life of property items. Because the Forest Service did not 

require reviews of data input for property transactions by a supervisor, 

another independent person, or by automated system edit checks within 

property systems, certain property items were not recorded properly. 

While the Forest Service made significant progress in fiscal year 2002 to 

reconcile its fund balance with Treasury accounts, the financial statement 

auditor noted significant control deficiencies in its reconciliation 

processes. For example, the Forest Service needs to research a large 

backlog of unreconciled items and take corrective actions. In order to 

bring the Forest Service’s fund balance with Treasury accounts into 

balance with Treasury records as of September 30, 2002, the Forest 

Service recorded an adjustment of $107 million. 

Although the Forest Service reached an important milestone by attaining a 

clean audit opinion on its financial statements, it has not yet proven it can 

sustain this outcome, and it has not reached the end goal, as envisioned by 

the President’s Management Agenda for improved financial management 

and the JFMIP Principals, of routinely having timely, accurate, and useful 

financial information. The Forest Service continues to commit 

considerable resources to correcting its financial management 

weaknesses; however, much work remains. In our January 2003 high-risk 

update, we again designated financial management at the Forest Service as 

“high risk” on the basis of its serious internal control weaknesses.10

In closing, Mr. Chairman, I want to emphasize that USDA has made 

significant progress in addressing its major challenges related to financial 

management and continues to do so. At the same time, before USDA is 

able to sustain financial accountability and produce relevant, reliable, and 

timely information to effectively manage the department, it and its 

component agencies, particularly the Forest Service, must resolve some 

very difficult issues. 

This concludes my statement. I would be happy to answer any questions 

you or other members of the subcommittee may have. 

 10 U.S. General Accounting Office, High-Risk Series: An Update, GAO-03-119 (Washington 

D.C.: January 2003).
Page 9 GAO-03-871T 

For information about this statement, please contact McCoy Williams, 

Director, Financial Management and Assurance, at (202) 512-6906, or 

Alana Stanfield, Assistant Director, at (202) 512-3197. You may also reach 

them by e-mail at williamsm1@gao.gov or stanfielda@gao.gov. Individuals 

who made key contributions to this testimony include Lisa Crye and Jeff 

Isaacs. 

Contact and 

Acknowledgments 

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